Abstract:
The determinants of the cash holdings of the firms hold important consideration for
management and the investors of the company. In order to strike a balance between
the cost and the benefits the tradeoff theory suggest different important variables
which can significantly influence the level of the cash holdings in the firms such as
the leverage, investment opportunities, debt structure, ease of financing, substitute
assets, dividend payout and the size of the firm as important determinants in setting
the level of the cash holdings in the companies. The investment opportunities, Trade
credit, leverage, debt structure, liquid assets and the ease with which the companies
can obtain debt from the markets along with the size of the company as the key
determinants of the cash holdings of the firms.
The current study analyzed the determinants for the cash holdings of the companies
listed at the Karachi stock exchange. Data was collected for a sample of 100 top
Capitalization companies and then the variables are calculated for a period of six
years from 2006 to 2012, these results in 600 observations for a sample of 100 cross
sectional units for a period of six years. The data is then analyzed using the panel
data analysis techniques, both the fixed effect and the random effect model however
based on the results of the Test the Random effect model with robust standard error.
The results of the study propose that the cash holdings of the firms have an inverse
association with the size, leverage and the liquidity of the firm. The dividend payout
of the company is found to have a direct link with the cash holdings of the firms. The
profitability of the company however is found insignificant and no relationship is
found between cash holding a return on asset of the company.
